Erik Thedeen, president of NASDAQ OMX Stockholm, talks to GlobalCustodian.com about the launch of a pilot project to clear interest rate swaps in Swedish kroner.
NASDAQ OMX has announced the launch of a pilot project to clear interest rate swaps in Swedish kroner. Working with SEB and the Swedish National Debt Office, the first trades of around SEK30 million ($4 million) were cleared on Monday.
Previously, SEK denominated IRS, a market with an average daily turnover of 30 billion SEK, have been collateralized and settled bilaterally.
The new IRS clearing house will be linked to the existing NASDAQ OMX Fixed Income clearing house. We are already set concerning our technical solutions and risk management, said Thedeen, but to have access from dealers into our system on a broader scale we probably need to have systems like MarketWire connected to our system. Thedeen also mentioned possible dialogue with TriOptima, a subsidiary of ICAP, based 4km down the road from NASDAQ OMX in Stockholm. TriOptima provides post trade infrastructure for the OTC derivatives, and launched the Global OTC Derivatives Interest Rate Trade Reporting Repository in January, having been selected by the International Swaps and Derivatives Associations Rates Steering Committee to provide a trade repository to collect information on all trades in the interest rate derivatives market.
The timeline for the full scale clearing house is variable, but Thedeen is aiming for the first half of 2011, if not sooner. Dialogue with the main swap dealers in the Nordic region will start the next week.
Potential U.S. and E.U. regulation has put pressure on traders to clear OTC derivatives through clearing houses. IRS clearing houses already exist, with LCH.Clearnets SwapClear covering around 40% of the global market, but NASDAQ OMX has become the first to clear IRS in Kroner. Thedeen also highlights that this is the first time and state or sovereign has entered into a swaps clearing project. Thedeen was also the deputy director general at the Swedish National Debt Office earlier in his career.
To have cross netting and cross margining in the kroner market is very important for some of our clients, said Thedeen. Also, the important difference between when I talk to clients today compared to a year ago is the credibility of the clearing house. NASDAQ OMX has a strong history in the Nordic fixed income market, and Thedeen hopes the firms local knowledge will encourage dealers to work with NADAQ OMX to develop the new IRS clearing offering.
Thedeen also noted that the original initiative came from SEB, who approached NASDAQ OMX in search of an IRS clearing solution. However, the clearing house is at a preliminary stage on fee structure. The fee will be dependent on the default fund and default management, and what kind of commitment we will get from the banks, explained Thedeen.